Viewers are binge watching and sharing video on multiple devices and social media like never before. New video distribution market entrants are driving this change to a large extent. It’s safe to say change won’t stop.

To remain competitive, not only will video service providers need to offer innovative new features, but they also will have to optimize their cost structure. Can they do that in today’s demanding environment? Can they be both feature rich and low cost?

We think so.

Looking ahead

As cable executives ponder the future of video, it’s useful to ask: “If you were starting from scratch, would you build a business based on linear video or video-on-demand (VOD)?” Most executives we’ve spoken with respond with an enthusiastic, “VOD!”

- Programmers pitch a playlist that represents an up-to-date “live” viewing schedule—along with video assets and corresponding metadata. The playlist would be the default viewing experience, automatically playing when a subscriber tunes to a channel. The rights have been secured to maintain the VOD asset in the active library for an extended amount of time, say a year. This replaces the need for nDVR.

- Programmer fees, ability to fast forward and number of ad spots available can be negotiated to ensure that the programmer is made whole.

This system recreates the linear experience, but with a number of advantages: specialized playlists (binge and theme experiences), customer playlists, support for ad insertion throughout the asset life and most importantly operations at a fraction of today’s cost.

VOD Nirvana: A boon for service providers

Today, Multiple System Operators (MSOs) operate three large video delivery platforms. In most cases, video is transcoded at least twice (Linear and VOD) and stored millions of times (once for VOD and millions of times for nDVR). In fact, the most popular 15 percent of unique programs recorded account for 66 percent of nDVR recordings.(1) Separate content management is done for linear and VOD.

Let’s look at three top cable entertainment networks’ linear channel groups—they occupy 17 video ingest streams given the various flavors and formats (HD and SD). Of the 1,500 total hours one channel broadcasts each week, only 1 percent are new.(2) Ingest and delivery resources are mostly wasted, versus a VOD-only system that ingests once and plays out when needed.

While investment will vary depending on the blend of cDVR subscribers, linear channels and VOD assets, a sample MSO VOD system represents roughly 15 percent of total IP video capital costs and 30 percent of total video operating costs.(3)

This isn’t an all-or-nothing proposition. Some channels would be easier to convert—starting with premium non-ad supported channels, pre-recorded content with ads and finally, channels with live content.

VOD Nirvana: Even better for consumers

In just five years, close to half of Millennials’ traditional TV viewing time has migrated to streaming or other activities.(4) Traditional providers must follow the trend.

For customers, VOD Nirvana could be made to look just like today’s user experience except with better video quality through non-real-time encoding. However, there is opportunity to enable new features like live TV pause, better trick play, bigger on-demand libraries and custom playlists. Customers could even be given the ability to watch shows ahead of the normal linear schedule. VOD Nirvana is a way to deliver the time-shifted content customers want both flexibly and cost effectively.

But will VOD Nirvana be great for programmers?

Programming rights and programmer business models can make sweeping changes in technology difficult. Rights to content differ across a programmer’s portfolio. For instance, one production company may grant rights to leave an asset in VOD for up a year, while another may limit that to a much shorter time frame. Some programmers don’t have rights to distribute all their linear content as VOD. Also, programmers will likely maintain dual delivery paths for some time.

Making the change to “VOD only” will require effort, so there must be a clear business case for the programmer.

To prove the business case for VOD Nirvana, testing based on data analytics will be required. Providers need to compare customers subjected to various ad and usage models against a control group of customers using today’s infrastructure.

Potential programmer benefits are promising: advanced yield optimization; flexible business models (ad, no-ad premium, fast forward fees); programming via marathons, mood, genre and custom playlists; and higher quality due to non-real-time encoding. To not consider the benefits of a new model risks being left behind.

The time is now—for service providers and programmers. Consumers have spoken—and VOD is the wave of the future.

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About VideoNuze

VideoNuze is the authoritative online source for original analysis and news aggregation focused on the burgeoning online video industry. Founded in 2007 by Will Richmond, a 20-year veteran of the broadband, cable TV, content and technology industries, VideoNuze is read by executive-level decision-makers who need to get beyond the standard headlines and achieve a deep understanding of online video’s disruptive impact.